Of course when you venture into the realm of self publishing, the quality of the works will vary significantly. That can mean a lot of weak material. But there's a lot of strong stuff there as well. Personally, I think it's worth the risk to find a fresh author with interesting ideas. Mainstream publishing, while much better in terms of quality control and consistency, is often painfully short on original concepts and well developed characters. When I look at the New York Times bestseller list, I see very few books that I would have an interest in reading.
Basically I see this as a product of the marketplace. As fewer people are reading, and those that read do so less often, fewer books are sold. Publishing houses are looking to make a profit, and they find themselves becoming ever more risk averse in order to place a product that the remaining readers will buy. What that means is publishing houses are relying on brand recognition of authors or concepts and then they ride those things to death. It's a similar phenomenon with movies with endless sequels. Mainstream publishing can produce a solid book, of course, but really tends to mire in mediocrity. This isn't new, but I think the dimensions of the market have made this situation more pronounced over the past decade.
From a business point of view this is perfectly understandable; I would run a publishing house the same way if I was in charge. But as a reader whose tastes don't align with the mainstream (even though I'm not that far off), I find myself either looking to classical literature from before 1900 or to independent works.
That's a risk, for sure. I'm quite proud of my own works, but even in my instance I'm a much stronger writer than self editor. I'm working on that, however, and I know many of my fellow independent writers are as well. If you can hang with some of us, those that show promise in the midst of a few blemishes, I promise you will be rewarded in the long run as we tighten our craft.
In a sense, this is where the iPad can really make a fundamental difference. If reading goes up as a result of the device, the industry will loosen up and take more risks as the margin for error won't be so tight. In the meantime, a place like Smashwords may very well be producing the most interesting contemporary material out there. Granted, along with a lot of very weak material as well. But I'll take the Smashwords catalog over any mainstream publishing house that continues to cater to a constant rehash of the same stories.